Property News & Updates

Interest-Only Investors Requires Smaller Deposit

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Westpac would allow borrowers in property to take out interest-only loans with smaller deposits than previously required under tightened regulations. Westpac is raising the maximum loan-to-valuation ratio for interest-only loans to property investors from 80% to 90%.

Will Ranken, Westpac general manager for homeownership, said: “Providing the support and finance to help buyers purchase their next investment property finance is a key focus of our lending strategy. We believe this change will provide a competitive proposition for investors looking to purchase their next property.”

The big four banks are the country’s biggest lender to property investors with almost $175 billion in investor loans, making up for more than 25% of the market share. Fellow major lender ANZ also halved their necessary deposit required for investors on interest-only loans in March.

ANZ which implemented a similar change earlier this year. Chief executive Shayne Elliot last month admitted ANZ had been “overly conservative” in its lending practices, and these changes to interest-only loans are a clear attempt at driving growth in the housing market, which has been slowing rapidly in recent months.

When interest-only lending surged to almost 40% of all outstanding housing credit in 2015, the Australian Prudential Regulation Authority (APRA) intervened by placing lending restrictions on the banks.

For the past four-and-a-half years, APRA has required banks to test prospective borrowers against the higher of either an interest rate of 7 percent or a 2 percent “buffer” over the loan’s actual interest rate, to ensure they could meet repayments if rates rise.

Concerned about the eroding of lending standards, APRA capped in early 2017 the proportion of new interest-only loans, prompting banks to raise interest rates and introduce tougher credit policies.

Instead, as house prices fell, APRA relaxed its policies and now the banks follow suit. In other positive investor news, banks have cut interest rates for interest-only borrowers by more than those on other mortgage forms.

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